A covered call strategy on a stable firm like P&G can play out well for investors.
Covered calls can be an intelligent options strategy to invest in a strong, stable company like Procter & Gamble
We like the calls struck at $65 expiring in January 2012, for which an investor can receive $2.19 per share in option premium (click here for Morningstar.com's option prices for P&G). In order to execute this investment, you would buy 100 shares of P&G at the present market price of $64.78 and sell 1 call option contract struck at $65 per share (one option contract is worth 100 shares of stock). If the shares are trading above $65 in January 2012, you have received $2.19 of premium and $1.05 of dividend payments, as well as a capital gain of $0.22 ($65.00 - $64.78) for a total dollar return of $3.46 per share on the investment.
If the shares are trading below $65 at expiration, you own the shares for an effective buy price of $61.54 ($64.78 - $3.24)--just below Morningstar's consider buying, 5-star price!
For more information regarding covered calls, please listen to a replay of our recent webinar entitled "Covered Calls A to Z".